In today’s “move-up” housing market, many buyers commonly have to sell their current home before they can purchase a new one. To protect themselves, a buyer will typically submit their offer making the purchase contingent on the sale of their current residence.
While many sellers are reluctant to consider offers with such a contingency, this out of fear it will take months for the buyers to sell their current home. A popular solution that the parties might consider is that a “right of first refusal” clause (or a “concurrency” clause as it’s called in some parts of this state) be added to the contract terms. This type of clause permits the seller to continue to market their home and to seek other offers. In the event the seller receives another acceptable offer, the first (primary) buyers then have a certain period of time in which to release the home sale contingency and proceed with the purchase (if they are unable to do so the seller then has the option of moving forward with the new buyer). This period of time is usually set at 48 or 72 hours, but it may be shorter or longer.
In theory, a right of first refusal clause can be an excellent tool for all parties involved. However, in practice the exercise of such a clause can turn into a legal nightmare for the seller, buyer, and their agents if the clause was poorly drafted. The following are the areas in which problems most frequently arise with right of first refusal clauses:
What type of offer/contract will trigger the clause? The right of first refusal clause should specify what type of second offer will trigger the buyers’ obligation to remove or satisfy the contingency for the sale of their home. For example, will any offer acceptable to the seller be sufficient or will only a non-contingent, cash offer allow the seller to exercise this clause? It is in the seller’s best interests that the clause be broad, allowing any offer that is acceptable to the seller to trigger the first refusal clause. On the other hand, for the buyer, it is best if the clause limits the seller to considering only offers that are non-contingent.
How will the buyers be notified that the clause is being triggered? The right of first refusal clause should set forth how the sellers will notify the buyers that they have received another acceptable offer. Can it be done verbally, or must it be delivered in writing? Just as important is clarifying when the clock starts to run. For example if the listing agent emails notice to the buyers’ agent, does the 24 or 48 hours start when the email is sent, when the buyers’ agent opens the email or when they notify the buyer?
What does the first buyer have to do? The contract should set forth clearly what the first buyers have to do to keep their contract alive after they are notified that the seller has received another acceptable offer. The clause should specify whether the first buyers have to demonstrate that they have a pending contract on their existing residence or can just remove the contingency on the sale of their home. The clause could also be written to require that the first buyers provide proof of financing that is not contingent on the sale of their home and/or will proceed to close within a certain specified number of days.
How will the buyers notify the sellers that they have satisfied/removed the contingency? The right of first refusal clause should indicate how the buyers must notify the sellers that they are removing or have satisfied the contingency. Is the buyer required to deliver the notice in writing? Is the buyer required to provide a letter from the lender verifying that their financing has been approved unconditionally?
These are the major areas in which disputes can arise when right of first refusal clauses are poorly written.
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
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